Agenda item
Statement of Accounts 2010/11 and Annual Governance Reports
This report which the Council’s external auditors, the Audit Commission, produce following completion of the audit of accounts is intended to identify any changes to the accounts, unadjusted mis-statements or material weaknesses in controls identified during the audit work. A separate Annual Governance Report has been produced for the Pension Fund accounts and this will also be considered by the Pension Fund Sub-Committee.
Representatives from the Audit Commission will attend the meeting to provide an update on the audit and respond to any matters raised by the Committee.
Minutes:
Andre White (District Auditor), Paul Viljoen and Jonathan Ware (Auditor Managers) were in attendance.
The Committee gave consideration to a report produced by the Audit Commission, the Council’s external auditors, based on the audit of accounts. The report was intended to identify any changes to the accounts, unadjusted mis-statements or material weaknesses in controls identified during the audit work. A separate Annual Governance Report produced for the Pension Fund accounts was also on the agendas for consideration.
Clive Heaphy, Director of Finance and Corporate Services introduced the report. He set out a number of reasons why the process for producing the statement of accounts for 2010/11 had been considerably more complex than in previous years.
Firstly, the fundamental change in the Council's financial processes which required a migration of financial information from multiple disparate systems previously in place to a single Council-wide system. In addition, the Finance Modernisation project resulted in a significant reduction in team numbers and a fundamental shift away from producing accounts locally in directorates to production via a central team.
Further, during 2010/11 the Council completed the mandatory transition of its accounting statements to comply with International Financial Reporting Standards (IFRS) which govern the way financial transactions were brought into account and how they were reported. The transition had affected both the appearance of the Council’s accounts and reported balances.
He continued that whilst the timetable for the production and audit of accounts was tight than in any normal year, the combination of all of the above factors made the 2010/11 process particularly problematic. He was quite confident that the investment in time and effort now would enable significant improvements to be achieved in future with consequent reductions in audit fees. The Director continued that he formally approved the draft Statement of Accounts in line with the Accounts and Audit Regulations on 30 June 2011, prior to the start of the audit.
The Director informed the Committee about a post balance sheet event resulting from Brent Housing Partnership’s (BHP) involvement in settled homes initiative. Although there would be no impact on the Council, the Director had provided BHP's auditors with assurances of the Council's support for BHP.
Mick Bowden, Deputy Director of Finance and Corporate Services gave an analysis of the key figures in the accounts and highlighted the significant changes in the balance sheet.
In welcoming the report, members expressed a view that the accounts and the statements were informative and paid tribute to the Director and his team for the sterling efforts made in presenting the accounts and statements. The Chair added that officers should consider submitting a shorter, more reader friendly version of the accounts in addition to the mandatory statements, to future meetings of the Committee.
Andrea White, District Auditor (DA) in providing a summary of her findings on the audit of the Pension Fund accounts stated that subject to the completion of her final review and audit closure, her audit was substantially complete. She proposed to give an unqualified audit opinion on the financial statements but would not issue her opinion until the audit of the Council’s main financial statements had been completed as the Pension Fund statements formed part of the Council’s financial statements. The DA continued that the draft financial statements were submitted by the due date, were substantially complete and supported by good working papers in line with expectations. She added that despite the teething problems from the introduction of the Oracle system, the migration of balances to the new system was well controlled. In her view, the financial statements submitted for audit were free from material error, missing and incomplete disclosures had been adjusted by officers and overall, she had not identified ant significant weaknesses in the pension fund internal controls. The DA stated that there were no material differences to the pension fund financial statements on the transition to IFRS and that she was satisfied that the pension fund financial statements had been properly compiled according to IFRS.
The District Auditor continued that the transition and migration problems experienced by Brent were a problem common to finance departments in many local authorities. She clarified that the audit trail was taking significantly longer than anticipated and due to delays, overly complex audit trails and a resultant high volume of audit queries and amendments. She continued that her audit of the council’s accounts had identified six material errors in the financial statements and a significant number of non-trivial and non-material errors which the Director and his team were actively working on to resolve them. In view of that the District Auditor stated that she would not be in a position to issue her audit opinion of the council’s accounts by the due date of 30 September 2011. The DA also added that she would want to complete the remainder of the council’s accounts audit before issuing her opinion on value for money.
With reference to paragraph 15 of the AGR, the DA amended the areas of audit work to take account of progress made but emphasised that the following two key areas were outstanding; cash and bank; final review and closing procedures. She also asked for the following three errors to be added;
Classification error £9m
Provision for redundancy £2m
Internal debtors and creditors £1m
The Director of Finance in responding to the above stated that redundancy payments had been budgeted for and that an adequate provision had been made in the reserves. He tabled an amendment to the recommendations which was later agreed.
Councillor Cheese noted the significant weaknesses in internal control identified by the auditor brought about by the introduction of the new systems and asked whether the systems were trialled for effectiveness. Councillor Al-Ebadi noted that the latest reconciliation provided to audit had reduced the gross outstanding amount and wondered whether officers could complete this by October when the audited accounts were due to be published.
Mick Bowden, Deputy Director in response stated that the new system was trialled and working effectively. The issues related to the migration of information previously held in different disparate systems. He added that having dealt with the transition the current system enabled monthly reconciliations and close downs and therefore timely presentation of accounts in the future. He continued that Audit Commission were aiming for the majority of the field work to be completed by the end of the month. In response to non-trivial and non-material issues which Paul Viljoen stated were not amended by the Council, the Deputy Director stated that those matters were agreed with the Audit Commission as not requiring adjustment and not impacting upon the financial position of the Council.
In bringing the discussion to a close, the Chair welcomed the progress made by the Council in the light of the problems resulting from the changes made. He however requested that management action plan against the DA’s recommendations and the Annual Governance Report be reported to the next meeting of the Committee. He asked about the measures that the Internal Audit could take to assist with the situation. Simon Lane Head of Audit and Investigations stated that he would bring forward some of the work being done including bank and reconciliations, move resources to key financial work and benchmark with other local authorities. The Chair noted that the unaudited accounts would be published by 30 September 2011 and subject to final information being submitted to the DA by mid-October the final audited accounts would be published. With that in view members;
RESOLVED:-
(i) that the Annual Governance reports from the Audit Commission and the letters of representation to the Audit Commission be noted;
(ii) that the Statement of Accounts be approved for publication subject to an adjustment of £1.939m in respect of redundancy costs for which provision is contained within the 2011/12 budget;
(iii) that if there were no further changes to the accounts or audit recommendations then they would be considered formally approved.
Supporting documents:
- Statement of accounts 2010-11 and AGR, item 5. PDF 70 KB
- Accounts 2010-2011 & AGR app1, item 5. PDF 610 KB
- AGR appendix 2, item 5. PDF 654 KB
- Annual Accounts 2010-11 Appendix 3, item 5. PDF 3 MB